Latest news with #Rotork
Yahoo
17-05-2025
- Business
- Yahoo
Rotork plc (LON:ROR) Shares Could Be 23% Below Their Intrinsic Value Estimate
Rotork's estimated fair value is UK£4.07 based on 2 Stage Free Cash Flow to Equity Rotork's UK£3.12 share price signals that it might be 23% undervalued Our fair value estimate is 8.2% higher than Rotork's analyst price target of UK£3.76 Today we will run through one way of estimating the intrinsic value of Rotork plc (LON:ROR) by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. Our free stock report includes 1 warning sign investors should be aware of before investing in Rotork. Read for free now. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (£, Millions) UK£107.4m UK£131.6m UK£155.6m UK£159.0m UK£184.0m UK£198.4m UK£210.6m UK£221.2m UK£230.5m UK£238.8m Growth Rate Estimate Source Analyst x7 Analyst x8 Analyst x4 Analyst x1 Analyst x1 Est @ 7.83% Est @ 6.17% Est @ 5.01% Est @ 4.20% Est @ 3.63% Present Value (£, Millions) Discounted @ 7.6% UK£99.8 UK£114 UK£125 UK£119 UK£128 UK£128 UK£126 UK£123 UK£119 UK£115 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£1.2b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.6%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = UK£239m× (1 + 2.3%) ÷ (7.6%– 2.3%) = UK£4.6b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£4.6b÷ ( 1 + 7.6%)10= UK£2.2b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is UK£3.4b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of UK£3.1, the company appears a touch undervalued at a 23% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Rotork as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.6%, which is based on a levered beta of 1.031. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. View our latest analysis for Rotork Strength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Machinery market. Opportunity Annual revenue is forecast to grow faster than the British market. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the British market. Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Why is the intrinsic value higher than the current share price? For Rotork, we've compiled three essential elements you should further examine: Risks: Every company has them, and we've spotted 1 warning sign for Rotork you should know about. Future Earnings: How does ROR's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the LSE every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Mint
14-05-2025
- Business
- Mint
David Fickling: How a simple valve can cut fossil fuel emissions but won't
A world that's serious about cutting a quarter of the world's emissions that come from methane should be expecting a boom in electric valve actuators. If your response is 'a what?" you're not alone. But this humdrum piece of equipment is one of the lowest-hanging fruit if we want to rein in methane leaks, which warms the atmosphere 72 times as rapidly as carbon dioxide. At the 2021 Glasgow climate conference, global leaders unveiled the Global Methane Pledge, a promise to cut emissions of this gas 30% by 2030. Nearly four years on, progress isn't just falling short, it's non-existent. Our failure to replace millions of devices that routinely vent methane (CH4) into the atmosphere is a sign of how lacklustre efforts have been. Also Read: Reduce oil and gas production, don't just make it leak less methane Actuators are ubiquitous throughout the oil and gas industry, which uses them as automated taps to control pressure and flow in the millions of miles of pipes connecting petroleum fields to refineries and processing plants. Traditionally, they're powered not by electricity, but by the pressure of the gas itself. The side effect of that method is that they're constantly leaking small amounts into the atmosphere. Across more than 6 million such devices in the US alone, this pollution adds up: More than half of CH4 leaks result from such pressure-powered controllers. A single one can seep 260 million cubic feet of gas a year, equivalent in emission terms to burning 33 barrels of oil. There's a better way of doing things. Electric actuators cost $3,500 and, hooked up to a solar panel, can be set up anywhere. They avoid the routine venting caused by traditional controllers while also sending useful data back to operators. The initial cost is higher, but they pay for themselves in a few years, thanks to lower maintenance costs and revenues from all the gas that stays in the pipe. Also Read: We want FTA with India and it will be fair to both: New Zealand envoy Indian plans to open LNG terminal in Iraq run into How is that business doing? Not so great. Rotork, a British manufacturer with about half the North American market for wellhead electric actuators, is currently trading around its lowest valuations in nearly a decade. The odds of a quick retrofit at the millions of operating sites seem remote. Despite the US Environmental Protection Agency finally mandating low-emission controllers on new wells last May after three years of wrangling, Rotork isn't expecting more than 40% to go electric until 2040. The idea behind the Global Methane Pledge was that fossil-fuel producers were leaving money on the table by wasting gas via leaks and oilfield flares. With US gas priced at $5.54 per million British thermal units at the time and global consumption forecast to increase 21% by 2040, the economics of installing new equipment to turn the waste into revenue seemed compelling. Things look different now. Gas prices are a third lower, while demand is not expected to ever increase more than about 5% from current levels. Optimists about voluntary promises have had a brutal lesson in the efficient markets hypothesis. If there was really a financial advantage in replacing gas-leaking actuators with less polluting ones, the industry would have done it already. That's a small, but telling, symptom of a wider failure. The latest estimates of methane emissions by the International Energy Agency (IEA) show no sign of change. Almost halfway to the pledge's target date, pollution by the fossil-fuel sector is still roughly the level it was at the start of the decade. If the US under former President Joe Biden was unable to get the industry to make the most basic of plumbing upgrades to cut its carbon footprint, what hope is there that the likes of Russia and Iran will do the same? Also Read: Counter-intuitive: Why Opec wants lower oil prices To the extent we've made any climate progress on methane in recent years, it's come not from the earnest do-gooders in Glasgow, but the worst actors on the global stage. Vladimir Putin's 2022 invasion of Ukraine was intended to make the world even more dependent on the biggest gas exporter, Russia. Instead, it caused consumers to switch from cheap piped methane to costlier but more energy-secure shipped LNG. That has driven up average long-term prices and weakened the prospects for demand growth. The IEA has cut its estimates for gas consumption in 2030 by about 250 million tonnes relative to where they were at the time of the Glasgow conference. In 2050, it reckons we'll be 735 million tonnes shorter. In climate terms, that reduction in demand makes almost as much difference as all our efforts to clean up the industry's waste. The Global Methane Pledge may have failed, but our efforts to rein in emissions have not. The best prospect was always to count not on the fossil-fuel industry's altruism or self-interest, but its ability to sabotage itself. ©Bloomberg The author is a Bloomberg Opinion columnist covering climate change and energy.
Yahoo
12-03-2025
- Business
- Yahoo
Rotork plc's (LON:ROR) Stock Has Seen Strong Momentum: Does That Call For Deeper Study Of Its Financial Prospects?
Most readers would already be aware that Rotork's (LON:ROR) stock increased significantly by 5.3% over the past week. As most would know, fundamentals are what usually guide market price movements over the long-term, so we decided to look at the company's key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Rotork's ROE. Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder's equity. Check out our latest analysis for Rotork Return on equity can be calculated by using the formula: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Rotork is: 18% = UK£105m ÷ UK£599m (Based on the trailing twelve months to December 2024). The 'return' is the profit over the last twelve months. That means that for every £1 worth of shareholders' equity, the company generated £0.18 in profit. So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features. At first glance, Rotork seems to have a decent ROE. Even when compared to the industry average of 15% the company's ROE looks quite decent. This probably goes some way in explaining Rotork's moderate 6.0% growth over the past five years amongst other factors. As a next step, we compared Rotork's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 9.3% in the same period. Earnings growth is an important metric to consider when valuing a stock. It's important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for ROR? You can find out in our latest intrinsic value infographic research report. While Rotork has a three-year median payout ratio of 57% (which means it retains 43% of profits), the company has still seen a fair bit of earnings growth in the past, meaning that its high payout ratio hasn't hampered its ability to grow. Moreover, Rotork is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 51% of its profits over the next three years. Still, forecasts suggest that Rotork's future ROE will rise to 22% even though the the company's payout ratio is not expected to change by much. In total, it does look like Rotork has some positive aspects to its business. Its earnings growth is decent, and the high ROE does contribute to that growth. However, investors could have benefitted even more from the high ROE, had the company been reinvesting more of its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
